Franchise & management selection: Making optimal decisions
Due to their complexity, hospitality assets require a high degree of management and marketing expertise. Different owners have different hold horizons and investment return requirements. Selecting management and a brand that best meet those specific needs is a critical step toward actually achieving targeted financial returns.
If this is your situation
- You have an aging hotel and its franchise agreement will not be renewed by its brand.
- You recently purchased a hotel and made a commitment to significant capital expenditures or a repositioning.
- The management company operating your hospitality asset recently took over management of a competitor's hotel in the same market.
- The brand on your hotel defaulted on its franchise agreement with you, opening the door to renegotiation or replacement.
How PwC can help you
An asset's physical product and condition, shifts in demand patterns in a market and owner's investment criteria all can play parts in the selection of management and branding. Through our operating, technical and marketing experience, PwC Hospitality and Leisure experts help owners through the processes of identifying and selecting management and branding that drive value. We can assist an owner in preparing a project marketing package and request for proposal document, and coordinate the process of identifying and selecting a qualified third-party operator and/or brand.
Establishing a contract between owner and manager and/or brand that works for all parties is critical to achieve the expected financial outcomes for owners and service providers. PwC Hospitality and Leisure professionals specialize in assisting owners with structuring their management and franchise agreements with third-party managers and brands.
Our franchise and management selection services include:
Beyond assisting clients in structuring contracts, PwC provides advisory services to owners of hospitality assets in many different areas surrounding management and franchise agreements. Other areas we have assisted our clients in the hospitality industry include:
- Establishing the nature of the relationship (agency or service contract)
- Base and incentive fees (management)
- Royalty fees (franchise)
- Allocation of chain services, central and regional office services and affinity (frequent guest) programs
- Purchasing policy disclosure and approval
- Timing of payments to operator (management) or brand (franchise)
- Information technology systems, financial and management reporting, property management systems
- Changes to brand standards (if managed by a brand or franchised)
- Authorization of capital expenditures
- Territorial restrictions, performance clauses and termination provisions
- Management of cash
Understanding a management company's accounting policies and procedures for managing an owner's cash can be important in structuring or restructuring a management agreement. How (timing) the management company is paying itself for management fees, chainwide allocations for services, and the reimbursement of expenses paid by the management company on behalf of the owner can have an impact on the actual cash flow (float) of the owner.
- Brand advertising, affinity programs and reservations
The methods the management company and/or brand uses in allocating costs to a property for chain-wide marketing programs is an important consideration when structuring the terms of a management or franchise agreement. Areas of importance include the methods used by a management company and brand in reimbursing the owners for recovered costs and property-specific costs related to affinity programs and promotions.
- Chain allocations and direct charges
Prior to drafting terms of a new management agreement, an owner should understand methods used by the management company in allocating costs to properties for chain-wide services. Additionally, an owner should know whether, under its existing contract, its property has been charged for services which should have been included in these allocations, consistent with the management agreement.
The selection of a management company and brand is a critical component to the overall success of a hospitality asset. PwC Hospitality and Leisure professionals assist our clients with comprehensive analysis and selections of a brand and operator, and when negotiating their management and franchise agreements.
Heightened awareness of the relationships the management company maintains with vendors that provide services to an owner's property is critical in determining if a relationship is detrimental to the property. This may include determining if the management company is receiving funds or rebates to participate in vendor programs and, if so, if proceeds are allocated to the respective properties.